The Shift Makes Sense

Portfolio managers right now are gripped between owning earnings growth at a reasonable price and owning sales growth at unreasonable price.

I think the vast majority of the growth companies delivered on their promises, but the stocks had gone up so far vs. historical levels of valuation that they couldn't just keep going up. But once they stopped going up, they were of no use to the faux growth managers who had been hiding in them but never really understood them. They just liked them because they were going up.

But the growth-at-a-reasonable-price stocks have started to betray some of their investors. Clorox (CLX) and Church & Dwight (CHD), ExxonMobil (XOM), Express Scripts (ESRX) and Cardinal Health (CAH) have all disappointed this week. These were bought because they weren't supposed to disappoint.

So, today we are getting a bit of a shift that makes sense when you think of it. Some of the high-flying stocks are down huge to the point where they aren't as expensive historically. Call them fairly valued, not undervalued. Some of the low fliers have become expensive historically vs. their growth rates.

There's only one problem: you get three days like this and the valuations will shift again.

Oh, and don't you for one minute believe that isn't exactly what will happen in three days -- if not sooner.

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